PE Board Talks Water Affordability
Published 4:31 pm Thursday, March 24, 2011
PRINCE EDWARD-Whether County Supervisors will elect to move forward with tapping into the Sandy River Reservoir is still to be determined, but the board continues to stream the concept.
Last week they received a financial analysis from Davenport and the team of Crowder Construction on possible costs.
Can it be afforded?
Is it needed?
Questions the board will have to answer themselves.
“As I recall, one of the main reasons that the board of supervisors has been looking at this for over a decade is the supply of water,” summed up County Administrator Wade Bartlett at the meeting. “The board of supervisors has always been concerned about the supply…that's available in the Appomattox River. Sometimes, we forget about that.”
While Bartlett said he could not speak for the board-especially for the time before he arrived-that, he cited, is what he was always instructed was one of their main reasons for building the reservoir 20-30 years ago.
“If you don't think there's a supply problem,” Bartlett stated, “then there's no need to develop the…Reservoir into a water supply.”
While many of the members on the board listened to the presentations with little comment, it was not the case for all. Farmville District Supervisor Jim Wilck peppered questions to presenters-questions that struck at the core of evaluations and costs of the County taking a full-fledged plunge into a water system beyond the limited service line just south of Farmville.
The County is in the midst of a lengthy evaluation process. Crowder Construction-with Draper Aden engineers-has worked on specifics of a water project as outlined in an interim agreement with Prince Edward tapping into the Sandy River Reservoir.
The County was presented an unsolicited proposal-under the PPEA, or Public Private Education Facilities and Infrastructure Act of 2002, localities may receive unsolicited proposals from private firms-and supervisors continue to take deeper look into the specifics of a water project as outlined in an interim agreement.
The proposed project factors the construction of an intake, water treatment facility and service lines extending to serve an area south of Farmville to Hampden-Sydney and east to Crewe. The intake structure is penciled in with an eight million gallons (MGD) per day intake infrastructure capacity and there would be an easily expandable two MGD facility treatment facility (located about a half mile from the reservoir) that could be upgraded to four MGD.
The final estimate for the project presented to the board-factoring Crewe and Burkeville's participation-earlier this year stands at $24,879,000, though there are estimated project indirect costs of $841,900.
While Board Chairman William “Buckie” Fore (who is a part-time employee of The Herald) highlighted at the beginning of the meeting that it was a work session on the financing of the Sandy River Water Project, he cited that it is the second of a series of meetings that the board will have with Crowder Construction and Draper Aden Associates. The meeting, an informational briefing, did not include a public hearing, but Fore cited that the citizens would have an “ample opportunity at a later date to ask questions and to have those questions answered. You will also have ample opportunity to give the board of supervisors input on the proposed project.”
Jimmy Sanderson, of Davenport (the County's financial advisor), presented a detailed financial review and capital plan of finance, wading into goals and objectives, existing debt, peer group comparatives, historical revenue and fund balance trends and capital plan modeling.
“…If we utilize the drop in your existing debt service-if you remember how much your debt service really drops over the next ten years and even after that-and the projected system revenues from the water project, that the County could establish a $4 million…rate stabilization fund and you would have no impact on the real estate taxes, for example…in the future,” he said.
He also highlighted, based on a two-and-a-half percent growth rate-which is more than the five-year and ten-year growth rate, they would have $1.3 million available in 2018 to use for whatever purpose the board chooses, which would supplement the general fund.
Sanderson presented an in-depth analysis of projections for the County, which also included factoring the cost of a water system. Among the highlights of the presentation:
*The County currently has about $15.5 million of outstanding debt and a debt service of about $1.9 million. That figure was projected to decline over the coming years. (It drops to $966,166 in 2018, $660,489 in 2022, $199,512 in 2028, and zero in 2040).
*It reported that the County's real property value is below that of a peer group as outlined in Sanderson's presentation, that assessed value growth in the last ten years is in line with the peer group average, and that the real property tax rate is below the group average. Only seven counties in the state, it was cited, have a lower real estate rate than Prince Edward.
*General fund revenues, on average, have grown 5.2 percent over the past 14 years; school revenues have grown 4.9 percent over the same period. Property tax revenues have grown 5.1 percent.
*Sanderson detailed that, from a “cash perspective” the County has a healthy fund balance.
*Real property assessed value has experienced a five-year average growth of 11.74 percent and a ten year average growth of 10.67 percent. Each penny of real estate tax levy currently translates into $155,484; factoring a 2.5 percent growth rate, the penny would generate $194,178 in 2019, $230,816 in 2026, and $254,778 in 2030.
*If the County were to borrow the funds for the project, Davenport factored a short-term note for the mid 2012 fiscal year with a four-year maturity, interest only for four years, and the cost of borrowing assumed (conservatively) at 3.75 percent. In mid fiscal year 2016, Davenport also factored long-term financing with 30-year maturity, first year of interest only, debt service for 29 years, and the cost of borrowing assumed (conservatively) at 5.5 percent.
*Davenport also assumed that no grant monies would be available for the project. It is also factored that Crewe and Burkeville would be part of the project. (The Department of Health award grants and it was noted they tend to allocate grants based on current usage, Bartlett cited. He suggested they may want most of those grants to go to Crewe and Burkeville, which would also help pay down the County's cost, too. Other grants could be helpful to Prince Edward, he said.)
Wilck offered a range of questions on the financial analysis. He specifically questioned the assumptions as far as revenue.
“As of today, I don't think we have a contract with anybody…to hook into the water system,” Wilck said, later offering, “So we're assuming revenues that may not exist.”
Sanderson noted that if they're going to look at a water project and make projections as to what the expenses and revenues are going to be, they are going to have to make assumptions.
“We used the projected revenues that were provided and factored those into the analysis,” Sanderson told the board.
Wilck would also comment, “…I was just…concerned that we're using revenues that we're definitely not assured of, but we certainly are assured of what we will have to pay back and the combination of the $2.4 or $2.6 (million) represents about 16 cents in the county's current…tax base for about 38 percent of the County revenue.”
(The figures represented the total annual cash flow requirement and factored existing and proposed debt. Bartlett would assess it would be about a third of only the County's real estate.)
A lengthy portion of the evening's work session included an analysis from Crowder Construction and the engineering firm of Draper Aden Associates.
Sheryl Stephens, of Draper Aden, offered that they understand that this is a huge project and that in projecting revenues they need to take a “much more conservative approach to the dollars that you'll generate on a monthly and annual basis from potential customers. So we really understand that…what you're gonna see in this presentation is we think very conservative numbers. And all we're trying to do is lay out a scenario to paint a picture of how the revenues from this project might flow into the county.”
The raw water intake and pump station, treatment plant, distribution system and indirect costs for the project total $25,720,900. Add the Town water agreement with the Town costs ($2.5 million), interim line of credit ($1.9 million), makes it an overall $30,120,900 project.
Factoring usage, it was projected that Crewe would chip in 5.5 percent (or $193,875) of the capital costs for the raw water intake and pump station, Burkeville a half percent ($17,625) and Prince Edward 94 percent, or $3,313,500.
Ms. Stephens cited they lowered the existing usage of Hampden-Sydney College (figuring some users would not buy water for irrigation use), no growth projected for Rice for several years, low numbers for The Manor development, lower number for conference center, low numbers for future parcels that might develop, that it includes no assumptions the County may attract a large employer or large water user, did not include significant growth for Hampden-Sydney and the surrounding area, did not assume growth to Longwood outside of the Town service area, no big increases for Crewe and Burkeville, and did not assume growth of Nottoway County outside of the towns.
Connection fees were also projected low, Ms. Stephens cited, and did not account for a large connection fee that a hotel might pay or a big box retailer.
Projected revenue from customers in the county is about $150,000 in the early years and is projected to increase to over $200,000 in ten years.
It was projected that initially less than 80,000 gallons per day would flow through the system and increasing to maybe 120,000 over a ten-year period, which, Ms. Stephens highlighted of the estimate, is pretty conservative.
*It was also projected in the first year of operation (2013) that just over half a million gallons per day of water would be sold (including users in Prince Edward, Crewe and Burkeville). Factoring some small growth, that was projected to increase to .713 million gallons per day in 2023. Essentially, it was detailed, that amounts to about a two percent increase in water sales each year over the 10-year period.
Revenue from Burkeville was projected at about $40,000 per year, which they are projected to pay to purchase water from the water authority that would operate the system. Crewe was projected to pay about $440,000 per year to purchase water. Other customers in the County were projected to chip in about $150,000 per year in the early years of the system.
“So, all in all what you see is revenue coming in of about $600,000 to go toward paying the cost of operating the plant and the cost of maintaining a distribution system in the county,” Ms. Stephens said.
Available net revenue to go toward debt service was estimated at $71,603.
“Now it's true Crewe and Burkeville have not signed on at this point and these are just projections as to how this will play out if we have that kind of water sale and have them as customers,” Ms. Stephens said.
Supervisor Wilck peppered more questions following the Draper Aden presentation. Among his concerns were the percentage of capital costs from Crewe and Burkeville in comparison to Prince Edward.
(The proposed allocation of capital costs for the raw water intake and pump station for Crewe were projected at 5.5 percent or $193,875 and for Burkeville at .5 percent or $17,625 in comparison to Prince Edward's 94 percent or $3,313,500.)
“What this does is it saves all the future capacity that you can get out of that reservoir for this county unless you choose to sell it to someone else,” Ms. Stephens explained. “You can sell it to Crewe and Burkeville later or to some other customer…”
“I'm still struggling here,” Wilck said. “They pay six percent and we pay 94 percent.”
Fred Pribble, of Draper Aden, also outlined that they are selling six percent of the eight MGD intake to Crewe and Burkeville and that they still own the other 94 percent.
“So they're only paying for that share of the eight that you're selling. The County maintains the other 94 percent,” Pribble said.
Wilck also challenged the figures of the permit. He cited information from the DEQ, outlining that they have permission to take out 1.36 billion gallons a year, which divided by 365, it comes up that they have permission to take out 3.7 million gallons.
Pribble responded that it's an average day.
“So I'm struggling a little bit with you telling us we could take 6.3 (million) and that's on a rare day. We have to average 3.7 (million) a day,” Wilck said.
Pribble cited they have the ability to take eight MGD. If they want to take 6.3 MGD, they can take it on a max day.
Wilck further offered that he believed 2.1 million gallons is allocated to the Town of Farmville, “which means we as a County only can get a maximum of 1.7. Why the heck are we putting in an eight million gallon intake? I mean, all we can take out is 1.7?”
Pribble cautioned they can only go into the reservoir one time because of cost and the safe yield of the reservoir is eight million gallons per day.
The proposal also calls for the construction of a two MGD water treatment plant. (The proposed allocation of capital costs for a water treatment plant were projected at 22 percent for Crewe or $2,857,140, two percent for Burkeville or $259,740, and 76 percent for Prince Edward, or $9,870,120.)
Wilck also indicated concerns about future projections of use and Prince Edward's capacity of 1.5 million.
“It's a two-million-gallon-per day-plant. If you allocate a certain amount to other people, the balance is yours,” Ms. Stephens explained. “All I'm saying is that the balance of the capacity in the plant would belong to the county to use as needed or perhaps, even to sell to someone else-one of these partners or someone else in the future.”
Wilck offered that Crewe and Burkeville are paying a “pitiful four percent of the cost for the plant and the distribution center and it's all falling on us and yet Nottoway County is getting 70-80 percent of the water.”
Ms. Stephens offered that, looking back on the revenues to the Authority, “you will see that those towns are picking up their share of the production of the water to produce the water and distribute it to them. Over time, their percentage of the water, if this county grows…and has greater demands in the future, I think it will even out and the County has the ability to surpass these two towns.”
Wilck questioned, at length, the two localities paying a lump sum fee. Ms. Stephens outlined that of the $25 million project cost only $19 million is the County's share. The other $5.5 million is the debt service that will be paid for the whole project cost by the two communities. (The debt service for Crewe was projected at about $350,000 per year.)
Out of the total project cost, she detailed, the County is going to pick up 75 percent of the capital cost and 75 percent of the debt service. The two towns-Crewe and Burkeville-would pick up about 24 percent of the debt service.
Most of it, Wilck assessed, is going to Nottoway County and most of the billing is coming to Prince Edward.
Ms. Stephens agreed that the capital cost is “coming to you because you will own the capacity.”
Lockett District Supervisor Don Gantt suggested costs for the raw water intake and pump station be factored on two MGD capacity rather than eight MGD capacity. (The proposal initially calls for a two MGD plant.) That, he calculated would increase Crewe's capital costs to $775,500 and Burkeville's to $70,500. That would leave the County 76 percent and the County chipping in $2,677,00.
“To me, that's more realistic right off the bat,” Gantt said.
Still, changing the formula and increasing the cost for the other entities could have an impact. Crewe and Burkeville have not agreed to participate and may believe it would be too expensive to join.
Without their participation, the project could also lose appeal as a regional project should the County pursue grants.
Bartlett reported that of the existing customers, they have already collected $46,500 in connection fees, just on seven-eight accounts. That figure, he also cited, does not include sewer.
Asked about capacity restrictions in the County's agreement with the Town (for the County's service area), Bartlett reported that there are no capacity restrictions. However, he noted the Health Department has restricted it to 250,000 gallons a day, offering it was his understanding, because of the water tanks and distribution systems. (Town Manager Gerald Spates offered that they have 250,000 gallons of capacity on the west side of Rt. 15 and The Manor has 250,000 gallons of capacity.)
Wilck cited that Draper Aden's projections were for 119,000 11 years from now “so in other words, what Farmville has offered at this point, would be twice what we hope to get to in 11 years.”
Still, water use could add up. Bartlett offered it could be pretty quick that they could reach 200,000 gallons of need. Granite Falls, he cited, is engineered based on 176 rooms and 52,000 gallons a day. (The revenue projections were estimated to be conservative, or low, and weighed only small growth and usage.)
It was also cited a fast-food restaurant is factored about 1.2 thousand gallons a day.
“I understand the part about the Appomattox,” Gantt said. “I've seen it get low. I've seen it where you could hop across it. I'm just not convinced right now that this would be the best way to do it, but it just depends on what Burkeville and Crewe want to do. If Burkeville and Crewe step up, this may be doable, but I don't know…that I can justify this (to) some of the people in my district…I'm (going to) try.”
Wilck highlighted that the Town uses 1.1 million gallons a day, that there are 40 million usable gallons in Wilck's Lake, that since 2002 they have bought Mottley's Lake which has 100 million usable gallons, and that the Town has designed a water intake for Buffalo Creek and, above the Buffalo, there are six-plus watershed lakes with an additional over 300 million gallons.
“So on the one time in 20 or 30 or 40 years, there's 440 million usable gallons available to offset that month,” Wilck cited.
He figured it's 220 days of drought.
Gantt cautioned, “You would be surprised how many property owners complained when we asked to open up those gates.”
While they have no choice, Gantt also offered that watersheds drain fast.
“…If you think there's…adequate supply then that's what you think and if the board thinks that, then that's fine and…you re-evaluate what you want to do. That's the bottom line,” Bartlett commented.
Potential users east of the County could have some need. Bartlett noted that the Department of Mental Health may expand and there is some concern of the amount of water supply.
“…Why do we care? Because 20 percent of all employees of those facilities-at least 20 percent-live in Prince Edward County,” he said.